WEAKNESSES

RISK ASSESSMENT

Services lift growth

Growth is expected to remain robust in 2019, supported mainly by services. In particular, sectors related to tourism, financial services and ICT will continue to drive the economic expansion. Public investment will play a part in developing these sectors through projects such as construction of a new landing strip in Plaine-Corail and a technology park in Rodrigues. Buoyed by the public investment programme, the construction sector should also continue to grow at a sustained pace in 2019. Financial services and real estate, meanwhile, should continue to attract private investment. Consumption, especially in the household segment, is set to remain brisk, benefiting from credit growth, low inflation; and social measures to support purchasing power (negative income tax and minimum wage). Conversely, manufacturing industries are expected to continue to post mixed performances, mainly due to the textile and sugar industries. Already affected by cooler external demand, textile exports could be further affected by Brexit, while the sugar sector, which is having to cope with lower prices following the end of production quotas in the EU, is set to face continued difficulties.

The deterioration in the trade balance is having an adverse impact on the current account deficit

For the 2018-2019 fiscal year, the political stance is expected to remain expansionary while the government deficit deteriorates. Social transfers, particularly in the run-up to elections, and increased capital investment spending under the public investment programme will continue to contribute to the fiscal deficit. Revenue growth, in line with the economic expansion, is unlikely to be enough to offset the increase in expenditure. While budget support, particularly from India and China, is also expected to go up, this will not enable the deficit to narrow. The risk of over-indebtedness is mitigated by the fact that a large proportion of the public debt needed to meet the government's borrowing requirements comes from highly liquid domestic sources.

In 2019, the current account deficit is expected to continue to widen, following the worsening trade balance. More muted external demand at the global level, particularly in Europe, and the difficulties affecting the sugar sector are likely to impact exports. At the same time, imports, chiefly of capital goods, are expected to increase. The surplus in the balance of services, thanks to financial intermediation, telecommunications and tourism, is expected to increase, but not enough to compensate for the downturn in the balance of goods. Profit repatriations by the many offshore companies located on the island should continue to support the income account surplus, but will remain relatively stable. The slight deficit in the transfer balance is also expected to stay at the same level. FDI and other investment flows should finance the current account deficit.

Government with a tarnished image in the run-up to elections

After comfortably winning the 2014 parliamentary elections, the ruling Lepep Alliance looks weakened in the lead-up to elections scheduled for 2019 or early 2020. The appointment of Pravind Jugnauth as Prime Minister in January 2017, succeeding his father Sir Arnerood Jugnauth, and the defection a month earlier by the Mauritius Social Democratic Party, one of the Alliance's constituent parties, lessened the Lepep Alliance's popularity. The coalition is also being hurt by growing concerns about cronyism and corruption within the government, a sense fuelled by the scandal in March 2018, when President Ameenah Gurib-Fakim was accused of using a bank card provided by an NGO for personal use. These scandals could damage the reputation of one of the highest ranked countries in sub-Saharan Africa according to World Bank governance indicators. Despite these scandals, however, political stability and good governance on the island are contributing to an internationally competitive business climate, with Mauritius coming 20th out of 190 in the Doing Business 2019 ranking.